The Slow but Certain Death of the Taxi Industry

That car driving past you, with several people inside - for all you know, the passengers are enjoying one of the new ride sharing services such as Uber, Lyft and Sidecar.
That car driving past you, with several people inside – for all you know, the passengers are enjoying one of the new ride sharing services such as Uber, Lyft and Sidecar.

Traveling by taxi is a highly variable experience.  A ride in a ‘black cab’ in London seems to combine the very best possible driver with the very best possible design of specialty taxi vehicle, but alas, also at the very highest possible cost.

On the other hand, taxis in other major world cities can sometimes be indistinguishable from primitive third world countries, other than when it comes to paying the outrageously high fare.

The current taxi industry is antiquated, inefficient, and in desperate need of reform.

A Surprising Example of Good Taxi Type Service – Russia

One of the best things about spending time in Russia has always been getting around town.  You simply stand by the side of the road, hold out your arm, and within seconds, someone will pull their car over.  This is an ordinary person in their ordinary car – someone with a bit of spare time in their schedule and willing to convert that spare time into possibly a detour on their drive in return for some extra money.

You tell the driver where you want to go, and they either agree to take you there or not.  If they agree, maybe you negotiate a fare before you step into the car, or maybe the driver invites you to pay whatever you think fair, or maybe the rate is negotiated during or at the end of the drive, particularly if the driver is not sure how far away it is, or how long it will take.

This is a wonderful service.  Almost no waiting, and very low fares.  Sure, you could also seek out an official taxi, and pay a huge fare, but why would you do that when there is such an efficient effective alternative.

Until recently, in the west, such a concept was unheard of.  Sure, there was long-distance hitch-hiking, but for travel around a town or city, it was either public transport or taxi.  Why can’t the rest of the world enjoy a similar concept to that which works so well in Russia?

The Many Problems of the Taxi Industry Today

One of the really extraordinary things about the taxi industry in much of the world is that while it costs a truly ridiculous amount of money to buy a taxi license, there is precious little quality offered to customers in return for the high-priced business investment by the taxi owner.

This article cites taxi license costs (‘medallions’) of $250,000 in San Francisco, $320,000 in Chicago, and almost $1 million in New York City.  Boston costs about $625,000.  Remember these fees don’t include the car.  This is just to buy the license to operate a taxi.

But we as taxi customers typically experience a well-worn vehicle with broken seats, a dirty third world interior, a driver who speaks little English and who either doesn’t know the way to your destination or deliberately takes a roundabout route, and while the taxi might have a/c installed, it is almost never switched on in summer, while the heat can be turned up to a stifling level in winter.

For all of that, we are expected not only to pay an expensive fare but also to give a generous 15% or more tip, even though there hasn’t been a single element of the ride experience that even qualifies as ordinary or acceptable, let alone any display of extra gratuitous personal service or an uncommonly fine travel experience.  But perhaps the tip is offered as grateful thanks for having survived what can often be a harrowing driving experience, with near accidents occurring at frequent intervals during the journey!

Interestingly, there are problems on the other side of the taxi business too.  While we might pay what seems to be a high fare when we take a taxi, drivers in many cities will tell stories of waiting several hours between getting one paying customer and the next.  And while we as passengers might suffer a rude driver, think about the drivers that suffer much more than merely rude passengers.  Not only do their taxis get vomited in, but they have passengers abscond without paying the fare, they get robbed, beaten up and even murdered.

The taxi industry can be as harsh on its drivers (who are usually not the same people as the owners of the taxi licenses) as it is on its passengers.

This fascinating article explains how the ridiculous nature of present day taxicab licensing has evolved, and the way that the cost of licenses have skyrocketed due to an unwillingness of licensing authorities to allow the demand for taxi licenses to be matched by the number of licenses they issue.  Today neither the public nor the taxicab drivers benefit from the ridiculous licensing fees.

If ever there was a business crying out for transformation, surely it is the taxicab business.  On the other hand, if ever there was an industry resistant to change, it is also the taxicab business.  The people who are making the huge profits are doing all they can to keep the taxi industry dysfunctional, so as to protect their ill-deserved incomes.

The Four or Five Intractable Problems in the Taxi Industry Today

So, there are four problems at present.  A ridiculously high cost of entry for new drivers, (and/or an artificial limit on the number of taxis); a very low standard of quality experience (notwithstanding all the apparent licensing requirements in place); a high cost to riders; and a very low return to drivers.

Overlaying all of this, and causing some of the problems, is an inefficient ‘data exchange’ as between where drivers are and where riders are.  At the same time that you are waiting 15 minutes for a cab to come and collect you, in another part of town there is a driver waiting two hours for a fare.

If it were possible to reduce the costs of entry for new drivers, if it were possible to realistically and truly quality control the ride experience, if it were possible to prevent drivers cheating by taking roundabout routes, and if it were possible to more accurately match available drivers with people wanting taxi rides, then the net result could be a much more pleasant experience, one truly quality-controlled, with lower fares to riders and higher incomes to drivers.

And Now – Enter the Paradigm Smashing Internet Apps

The good news – the great news – is that all these problems have easy solutions, and while the vested interests have succeeded for 75 or so years in freezing the industry in its present dysfunctional form, the wonderful ‘disintermediation’ tool that is the internet is now promising to make the formal established taxi industry irrelevant and obsolete.

The modern-day phenomenon of nearly universal and inexpensive GPS equipped smart phones provides a monitoring tool for taxi companies to know where there taxis are (sure, traditional taxi companies sometimes have GPS tracking devices in their taxis already) and also – here’s the really magic part of it – where their customers are too.  Plus, the GPS system can provide a ‘default’ route to reduce the chance of the driver cheating, and/or, modern mapping services can simply calculate a distance and travel time between pickup point and destination and come up with a suggested ‘flat fare’.

Because the despatch service knows where you are and where the closest taxi is, it can reliably tell you when you will be collected, and it can also show you the driver’s progress to your destination, while simultaneously making the driver accountable for fulfilling his acceptance of your request for service.  No more of the empty promises and endless delays of when a taxi might actually get to you as is sometimes the case with traditional services (a cab driver might accept a fare, be driving to pick up the person, then get hailed by someone else and accept that fare instead, leaving the original person who called for the cab stranded).

The same type of program that can be used to match together taxis and their intending passengers can also provide an easy feedback loop for passengers.  If you didn’t like the driver or the cab, it can be just one or two clicks on your phone app to report your concern to the despatching service – no need to fill out lots of paperwork and struggle to identify who the driver or cab was, when complaining to a licensing authority.

The accountability goes both ways.  The driver and despatch company also know who you are, so if you act inappropriately, they can blacklist you in the future, or track you down to demand payment or report you to the police.

They also know that if you call for a taxi and then are not there for when it turns up, they can automatically bill you a cancel fee.  As we all know, it is far from uncommon to call for a cab, then, while waiting for your cab to arrive, to have another cab turn up and take you instead.  These new services neatly balance passenger protection and driver protection.

Payments can also be automated.  If the taxi program on your phone has your credit card details on file, it can tell you, even before you agree to the ride they are offering, what your total fare will be, and if you agree, automatically charge your credit card.  Tips can be built in to the fee, saving you the hassle of trying to juggle cash at the end of the ride.

Although drivers have to pass background checks that are probably as rigorous or even more so than do regular taxi drivers, there is little or no cost for anyone to become a driver, and little or no leadtime in having drivers accepted into the system, allowing the market to truly find its own balance between supply and demand.

Drivers are sometimes fulltime drivers, and often are former traditional taxi drivers, who are finding working for these new services is simultaneously easier, less stressful, and more profitable.  But they are also ‘ordinary’ people – people like you.  People hoping to find someone going where they are going, and to make a bit of spare change in return for very little inconvenience.  People who have a spare afternoon or evening, and decide to log into the despatch system and if an attractive fare pops up close to where they are, to take it on an opportunistic basis.

As for the fares themselves, some of the apps can and will even adjust the fare levels based on the supply and demand as between drivers and fares.  If there are too few drivers available to service ‘too many’ people wanting transport, they increase the fares, which simultaneously encourages more drivers to accept fares and also slims down the number of people wanting service.  Truly, that is the free market fully at work.

In these types of systems, efficiency and information flows are at maximum, and so costs can be expected to be reduced, while profits increased.  Passengers will pay less and get better service, while drivers will earn more, and both parties will be safer.  What’s not to like about that?

The Main eTaxi Type Apps to Use

There are a wide variety of startups all trying to become leading players in providing despatch services to match together willing drivers and wishing passengers, offering the type of service described above.

Two of them are clearly market leaders in the US; but others may possibly catch up and displace them in the future.  For us as passengers – or even as drivers – it doesn’t really matter.  It isn’t like we’re making a life long commitment or making any upfront payments – we are free to tactically switch our preferred source of taxi services, ride by ride, depending on which service offers a taxi soonest and at the best price.  Some drivers work simultaneously for several of the services, so as to maximize their possible revenue.

There are also regional differences around the US, but in general, the two apps you should add to your smartphone and are most likely to see available in your area are for Uber and Lyft.  The apps are free and work on both Android and Apple smartphones.

A smaller third company is Sidecar, and there are plenty of others.  Sidecar is interesting, because drivers can set their own fees rather than follow the charging formula that is usually specified by Uber and Lyft, but it is only available in a few cities currently (eight as of late June 2014).

Uber offers up to four different categories of service depending on the type/quality of vehicle being provided.  It seems that Lyft’s fees are slightly lower that than the least expensive of the four categories of Uber fees.

To our disappointment, we find that there aren’t huge savings as between the cost of using Uber/Lyft and a regular taxi, but the experience is invariably more pleasant and you as a passenger feel more ‘in control’ of the total event.  It only takes a few taps on your phone to see if there is a driver nearby; if there isn’t, then you can still call a regular taxi, of course, but if you’re in an area served by Uber, Lyft or Sidecar, you might want to try out the experience.

Chances are you’ll like it.  Truly, these new apps are bringing about the slow but certain death of the traditional taxi industry, and that’s a death we’ll shed few tears over.

3 thoughts on “The Slow but Certain Death of the Taxi Industry”

  1. merleminda

    Star Tribune reporters in Minneapolis went out on the street to test taxi service. In a highly publicized report, they learned the black customers have to wait up to 5 times longer for a taxi — taxis simply pass them by or refuse to take them if a black person is added to the passengers; taxis almost always refused to take credit card, which they are legally obligated to accept, and taxis refuse to take fares if they are going a short distance — also illegal. Is it any wonder why Uber and Lyft have made such inroads?

  2. armsbill

    Interesting, but we’ve had the dispatchers able to know where the taxis are since about the 1980’s. This internet app thing is nothing new at all. The only time we wait a long time for a taxi is when others are wanting to use them a lot, during peak demand. Just like anything else.

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